PBOC cuts reserve requirement ratio to 19.5%

Thursday, February 05, 2015

The PBOC cut the reserve requirement ratio for the first time since May 2012 in a bid to free up more capital and boost lending to the private sector. The reserve ratio was lowered to 19.5% from 20% previously and is expected to see as much as 600bn yuan made available for lending with the central bank stating that it would “continue to implement prudent monetary policy” and “guide stable and appropriate growth in lending”, further signs that a more active approach was being taken. The announcement saw yields on government issued securities drop back towards multi-month lows with the yield on 10 year bonds slipping back to 3.49%. The seven day repo rate also experienced a slight pullback, declining 13 basis points to 4.4% after climbing to a four week high of 4.9% earlier in the week as banks stockpiled cash on anticipation of an increase in demand ahead of the Lunar New Year holiday.

The ECB tightened Greece’s access to cheap liquidity, presenting a firmer opposition to the newly elected anti-austerity government than many market participants had previously expected. Specifically, the central bank banned the use of the country’s debt as collateral for ECB cash, mere weeks before a limit was expected to be introduced. The decision made on Wednesday was seen by investors as a response to Syriza’s opening salvo a few days ago when it hinted at the potential threat of Greece leaving the eurozone. The ban extended further to include Greek government backed debt and indicates the central banks continued pressure on the indebted nation. The announcement saw the euro erase most of Tuesday’s gains yesterday as the single currency closed 1.2% lower at 1.1345 against the dollar after intraday declines saw levels towards 1.1315 targeted.  

Continued uncertainty surrounding a potential Grexit saw gold prices rally almost $10 higher yesterday with the SPDR Gold Trust ETF seeing positive flows on safe haven demand. Prices for the yellow metal snapped a two day bear run and gained 0.7% on Wednesday, recovering much of the previous session’s losses as jittery investors took a breather and pulled out of risk assets. Today’s data releases see’s the ECB release its monthly economic bulletin as well as the Bank of England rate decision while over in the US, investors hope that non-farm payrolls, trade balance and initial weekly jobless claims will offer the necessary conviction for further risk taking after this momentary pause.

10 year yields on Chinese government bonds pull back on PBOC move

GCNY10YR Index China Govt Bond 2015 02 05 07 13 37

EUR drops yesterday on tough ECB stance

EUR Curncy Euro Spot 2015 02 05 07 55 00

Gold prices improve on haven demand

XAU Curncy Gold Spot Oz 2015 02 05 07 57 02

Events for today

0700

DE

Dec

Factory Orders

0900

EZ

Feb

ECB Monthly Economic Bulletin

1200

UK

Feb

BoE Rate

1230

US

Jan

Challenger Layoffs

1330

US

Dec

Trade Balance

1330

US

Q4

NF Prod. & Labour Costs

1330

US

w/e

Jobless Claims

Topics: Gold, ECB, EUR, CNY, PBOC
More from: Kash Kamal